1950 (8) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of the Rs. 3000 received as remuneration for acting as an arbitrator.
2. Interpretation of Section 4(3)(vii) of the Income Tax Act, 1922.
3. Definition and scope of "income, profits, and gains" under Section 6 of the Income Tax Act.
4. Nature of the receipt - whether it is casual and non-recurring.

Detailed Analysis:

1. Taxability of the Rs. 3000 Received as Remuneration for Acting as an Arbitrator:
The primary issue was whether the Rs. 3000 received by the respondent as remuneration for acting as an arbitrator under Section 234 of the Madras Local Boards Act, 1920, was exempt from assessment under Section 4(3)(vii) of the Income Tax Act, 1922. The assessee, a retired High Court Judge, was appointed as an arbitrator and received Rs. 3000 for his services. The Income Tax Officer, the Appellate Assistant Commissioner, and the Income Tax Appellate Tribunal had differing views on whether this amount was taxable.

2. Interpretation of Section 4(3)(vii) of the Income Tax Act, 1922:
Section 4(3)(vii) exempts "any receipts not being capital gains chargeable according to the provisions of Section 12B and not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee." The court had to determine if the Rs. 3000 fell within this exemption. The court held that the remuneration was not exempt under Section 4(3)(vii) because it arose from the exercise of an occupation as an arbitrator.

3. Definition and Scope of "Income, Profits, and Gains" under Section 6 of the Income Tax Act:
The court examined whether the Rs. 3000 could be classified as "income, profits, or gains" under Section 6. The court referred to the Privy Council's definition in Commissioner of Income Tax, Bengal v. Shaw, Wallace & Co., which stated that income connotes a periodical monetary return from definite sources. However, the court noted that this definition was modified by the Privy Council in Gopal Saran Narain Singh v. Commissioner of Income Tax, which expanded the scope of "income" to include anything that can be described as income unless expressly exempted. The court concluded that the Rs. 3000 was indeed "income" as it was a gain or profit from the arbitration work.

4. Nature of the Receipt - Whether it is Casual and Non-recurring:
The court also considered whether the Rs. 3000 was of a casual and non-recurring nature. The court held that the remuneration was not casual, as it was promised and agreed upon before the work was undertaken. The court distinguished this case from Commissioner of Income Tax v. Ahmed Badsha Sahib, where the remuneration was not stipulated or expected, making it a casual and non-recurring receipt. In contrast, Mr. V. P. Rao's remuneration was pre-determined, making it neither casual nor non-recurring.

Conclusion:
The court concluded that the Rs. 3000 received by Mr. V. P. Rao as remuneration for acting as an arbitrator was not exempt from assessment under Section 4(3)(vii) of the Income Tax Act. The sum was taxable as it arose from the exercise of an occupation and was not of a casual nature. The court answered the referred question in the negative, holding that the amount was assessable to income tax. The assessee was ordered to pay costs to the Commissioner of Income Tax, with advocate's fees set at Rs. 250.